Enviro Recyclers has processing plants in Maine and Connecticut. Both plants use recycled glass to produce jars that are used in food canning by a variety of processors. The jars sell for $20 per unit. Budgeted revenues and costs for the year ending Dec 31 2011 are:

2016 Segment Margin Budget
	Maine	Connecticut	Total
Sales Units	110,000	200,000	310,000
Sales $	$2,200,000	$4,000,000	6,200,000
Variable production costs:
Direct material	550,000	1,000,000	1,550,000
Direct labor	660,000	1,000,000	1,660,000
Variable Factory overhead	440,000	700,000	1,140,000
Total	1,650,000	2,700,000	4,350,000
Contribution Margin	550,000	1,300,000	1,850,000
Direct/Traceable Fixed Costs:
Fixed factory overhead	700,000	900,000	1,600,000
Fixed regional promotion costs	100,000	100,000	200,000
Total Fixed Cost	800,000	1,000,000	1,800,000
Segment Margin	(250,000)	300,000	50,000

Fixed regional promotional costs are discretionary advertising costs needed to obtain budgeted sales levels.

Because of the budgeted operating loss, Enviro is considering the possibility of ceasing operations at its Maine plant. If Enviro ceases operations at its Maine plant, all fixed factory overhead costs would be eliminated.

Enviro is considering the following three alternative plans:

PLAN A: Expand Maine's operations from its budgeted 110,000 units to a budgeted 170,000 units. It is believed that this can be accomplished by increasing Maine's fixed regional promotional expenditures by $120,000.

PLAN B: Close the Maine plant and expand Connecticut's operations from the current budgeted 200,000 units to 310,000 units in order to fill Maine's budgeted production of 110,000 units. The Connecticut Plants Fixed Factory Overhead will increase by $50,000 to cover this additional production.

The Maine region would continue to incur promotional costs in order to sell the 110,000 units. All sales and costs would be budgeted through the Connecticut plant.

PLAN C: Close the Maine plant and enter into a long-term contract with a competitor to serve the Maine region's customers. This competitor would pay Enviro a royalty of $2.50 per unit for the 110,000 units that Maine would have sold. Enviro would continue to incur fixed regional promotional costs to maintain sales of 110,000 units in the Maine region.

Requirements

Break Even: Using the 2016 Budget ONLY, determine the number of units that must be produced and sold by the Maine plant to cover all of the costs per the budget above (i.e. break even). Use the amounts from the budget above to do this Break Even calculation. Do not consider the effects of implementing Plans A, B, and C.

***Show your calculations

Hint Compute Sales Price per unit & Variable Cost per unit to determine Per Unit Contribution Margin (Sales price per unit Variable cost per unit = Contribution Margin per unit).

Then use the Break Even formula (Total Fixed Cost / Contribution Margin per Unit Break Even Unit Sales) to compute break even units

2) Plan A: Prepare a Segmented income statement for each plant and in total in the same format as the budget above from the implementation of Plan A. Use the same level of detail for variable and fixed costs per above (i.e. itemize by type).

Plan A-C Hint

Hint compute variable costs per unit for each variable cost type. Do for each plant using 2016 budget. Apply these rates to new unit sales per Plan assumptions. Compute fixed costs per Plan assumptions.

Compute sales price per unit using 2016 budget. Apply these rates to new unit sales per Plan assumptions to calc new sales $.

3) Plan B: Prepare a contribution margin budgeted income statement for the company which now includes only the Connecticut Plant from the implementation of Plan B. Use the same level of detail for variable and fixed costs per above (i.e. itemize by type).

Hint - Make sure to budget for total company regional promotion costs (the Maine plant is gone but the costs are not!)

4) Plan C: Prepare a contribution margin budgeted income statement for the company which now includes only the Connecticut Plant from the implementation of Plan C. Use the same level of detail for variable and fixed costs per above (i.e. itemize by type).

Hint The sales units will be 200,000. The revenue from the royalty is a separate revenue line and does not impact sales units or costs.

Hint - Fixed Factory overhead will go back to $900,000 as the Conn. Plant is back at a 200,000 sales level.

Hint make sure to use the units Maine would have sold when computing royalty revenue

Hint - Make sure to budget for total company regional promotion office costs (the Maine plant is gone but the costs are not!)

Briefly discuss the advantages and disadvantages of each plan considering qualitative factors and recommend a course of action.